Treasury cuts Kenya growth forecast to 5pc

By James Anyanzwa

The Government has made a dramatic shift over its economic growth forecast for the year 2013 saying the economy would now grow at 5 per cent as opposed to its earlier projection of 5.6 per cent.

This comes after East Africa’s largest economy showed a dismal performance in the third quarter (July-September), heavily weighed down by increased cost of living, surging insecurity after the Westgate mall terrorist attack, depreciation of the shilling exchange rate and widening of the current account deficit as the country imported more than it exported.

The economy grew at a lower rate of 4.4 per cent compared to 4.5 per cent in a similar period in 2012 with various sectors such as agriculture, hotels and restaurants registering subdued growth.

On average the economy expanded by 4.6 per cent during the nine months period (January-September) compared with 4.4 per cent in 2012.

Mr Justus Nyamunga, director at the Economic Affairs Department at the National Treasury said the economy is unlikely to hit the 5.6 per cent growth rate in 2013 owing to various internal and external shocks.

remained robust

“We had initially projected a growth of 5.6 per cent in 2013 but looking at the last three quarters we are likely to see a growth of about five or 5.1 per cent. But that means we must grow strongly in the fourth quarter,” Nyamunga told a gathering during the public hearing sessions on the 2014/2015 medium term expenditure framework (MTEF) budget in Nairobi yesterday. He noted that the fourth quarter of 2013 is expected to grow by 6.7 percent for the annual growth to reach 5.1 per cent.

“With improved weather conditions, easing of inflation, lower interest rates and stable exchange rates, we expect growth of 5.1 per cent in 2013 up from 4.6 per cent in 2012,” he said. He said the global economic prospects have improved led by recovery of the US economy, but the road to recovery in the advanced economies remains bumpy.

The global growth forecast for 2014 has been revised downwards from 4 per cent to 3.6 per cent. Advanced economies are gradually strengthening on account of right policies and momentum in consumer and investor confidence but growth in the emerging markets and developing economies is slowing down due to new policy challenges. Growth in sub-Saharan Africa, however, remained robust in 2013.

“These developments together with renewed investor confidence following successful elections bode well for accelerated growth prospects in Kenya,” said Nyamunga. “On the domestic front, economic growth prospects remain strong despite instability witnessed in the sub region, including conflicts in Central African Republic and Southern Sudan.”

slow pace

According to the National Treasury, the risks to the country’s economic outlook include continued weak growth in advanced economies that will impact negatively on exports and tourism activities, geopolitical uncertainty on the international oil market and public expenditure pressures, especially recurrent expenditures and in particular wage and interest payment.

Government think tanks issued a pessimistic forecast of the country’s economic outlook, citing rising cost of living, poor weather, uncertainty in the international economic environment and slow pace in the implementation of the constitution.

Economists at the Kenya Institute for Public Policy Research and Analysis (KIPPRA) expect the economy to grow by 4.7 per cent in 2013 and five per cent in 2014.  The economy grew by 4.6 per cent last year (2012) driven by growth in sectors such as agriculture and Building and Construction.